Portfolio Summary for September 2019

As of 30 September 2019

Cash Equity

DBS Group	400	$25.00	23.38%
OCBC	900	$10.86	22.85%
SATS	2,000	$4.84	22.63%
ST Engineering	2,500	$3.84	22.44%
Old Chang Kee	5,000	$0.745	8.71%

Portfolio Market Value = $42,779

SRS Equity

Security	# Shares	Price	Portfolio %
SGX	1,300	$8.47	23.53%
OCBC	900	$10.86	20.89%
Sheng Siong Group	8,700	$1.11	20.64%
SingTel	2,000	$3.10	13.25%
CapitaCommercial Trust	3,000	$2.07	13.27%
Frasers Commercial Trust	2,446	$1.61	8.42%

Portfolio Market Value = $46,790

It was a quiet September month.  The STI had gone on a roller-coaster ride, and is nearly back to where it started the month.  Doomsayer calls for a recession next year have gotten louder, with nervous folks predicting terrible times ahead (see news and news).  The U.S. and China will resume their trade negotiations on Oct 10 (news), though it is anyone's guess whether there will be light at the end of the (tariff) tunnel.  Our leaders are certainly worried.  PM Lee had just reminded Singaporeans to 'be prepared for rough weather ahead' (news).  DPM Heng Swee Keat also noted that 'the Government is closely monitoring how the economy will pan out by the end of the year, and is prepared to take action when necessary' (news).

Amidst the gloomy atmosphere, I had managed to execute one trade.

Trade Actions

ST Engineering

I initiated a position of 2,500 shares in ST Engineering at $3.84 apiece.  I have been optimistic about the prospects of this company.  What began as a defence contractor for the fledgling Singapore Armed Forces in the 1960s has blossomed into a global technology and engineering group, with specialty in aerospace, electronics, land systems and marine.  The company has a healthy order book of S$15.6 billion, which includes a S$1.0 billion contract to build a heavy polar icebreaker for the U.S. Coast Guard (announcement).  ST Engineering has been generating positive free cash flow consistently over the years.  The stock price had taken a dip at month end, which I thought was an opportune time to acquire a stake.

Savings

In all honesty, I feel it is not worth talking about Singapore Savings Bonds (SSB) at this moment.  The low yield is comparable or worse than some of the fixed deposit (FD) products in the market.  We will be middling around 1.73% for next month's SSB.  If you have S$20,000 and one year time horizon, ICBC has a FD promotion that is better (link).  You may want to check out their website.

Looking Ahead

September marks the end of another calendar quarter.  Companies will be releasing their results between end October and mid November.  We will know which local companies are affected by the vicissitudes of the ongoing U.S.-China trade spat.  Earning releases tend to make stock prices volatile, as institutional funds buy or dump shares depending whether it is a 'beat (estimates)' or a 'miss'.  I will be wary to take on a position until the earnings reporting season is over, and the market has absorbed the full information bonanza.

That said, there may be special situations which cause a stock price to plunge without any major change in fundamentals (such as an analyst downgrade).  I'm keeping my powder dry and ready for such opportunities.

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“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”

― Mark Twain, Pudd'nhead Wilson

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Portfolio Summary for August 2019

As of 31 August 2019

Cash Equity

Security	# Shares	Price	Portfolio %
DBS Group	400	$24.53	30.03%
OCBC	900	$10.65	29.34%
SATS	2,000	$4.8	29.38%
Old Chang Kee	5,000	$0.735	11.25%

Portfolio Market Value = $32,672

SRS Equity

Security	# Shares	Price	Portfolio %
SGX	1,300	$8.20	22.56%
OCBC	900	$10.65	20.28%
Sheng Siong Group	8,700	$1.18	21.73
SingTel	2,000	$3.17	13.42%
CapitaCommercial Trust	3,000	$2.13	13.52%
Frasers Commercial Trust	2,446	$1.64	8.49%

Portfolio Market Value = $47,252

Time flies in a hurry.  I celebrated my older son's, my wife's as well as my own birthday this month.  I was amused and touched, when my five-year-old son tried to buy a birthday cake for me with his sole $1 coin.  It is little acts like this that make me feel grateful to be a father.

On the US-China trade war, there seems to be no light at the end of the tunnel.  The protest situation in Hong Kong had worsened, with violence being a common scene.  An economist had predicted that Hong Kong will precipitate a global recession (news).  I feel it is a bit premature for such a call, but I have been monitoring the market for an opportunity to buy shares of companies on my watchlist at a good price.

Trade Actions

LHT Holdings

I sold my position in LHT Holdings at $0.51 apiece.  I couldn't explain the peculiarly consistent 10,000+ shares that changed hands everyday as the price declines.  It is as if a substantial shareholder is selling his/her stake, bit by bit daily.  It started on April 13, even though there wasn't any drastic change in the company's fundamentals.  As this downward price creep is not observable in the other micro caps on my watchlist, it made me very uncomfortable.  I tried writing to Investor Relations for an explanation, but to no avail.  Since the price hit my stop-loss, I steeled myself and had to let go of the position.  I may revisit this company when the selling pressure has ceased.

Old Chang Kee

I added 4,900 shares of Old Chang Kee (OCK) at $0.725 apiece.  I feel OCK occupies a sweet spot in the F&B industry, providing more than a nibble and less than a full meal.  The profit margin is relatively stable and inflation-proof - I have seen how the price of an OCK curry puff rose over the years from $0.90 to $1.50 today.  The only concern is their UK joint venture, which is still bleeding money every quarter.  Hope OCK management can either scrap the idea, or properly evaluate a route to profitability.

Savings

The average yield on Singapore Savings Bond (SSB) has fallen below 2%.  Based on current outlook, it is unlikely the rate will rise in the near term.  Next month's SSB yield is expected to sink even lower to 1.75-1.76%.

Looking Ahead

Honestly, if even Warren Buffett is hoarding cash (news), it says much about the stock market at the moment.  It is tough to know what the unpredictable President Trump may do to incur China's retaliation and bring about a full-blown trade war.

Should the current trade hostility escalates, and the global economy plummets into a recession, it can be assured that the stock market will not be spared either.  As the cliché goes, the best time to buy stocks is when there is blood on the street.  I am standing by a small 'warchest' in case this scenario come to fruition.

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Happy News from OCBC

Came to office today, only to find positive news released from OCBC.

Not only has the company defied The Street's expectations of a drop in profit, it also INCREASED its interim dividend to 25 cents per share - the highest amount ever!

My Friday morning is starting to look brighter already.

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Portfolio Summary for July 2019

As of 31 July 2019

Cash Equity

Security	# Shares	Price	Portfolio %
DBS Group	400	$26.41	26.80%
OCBC	900	$11.54	26.34%
SATS	2,000	$4.82	24.45%
LHT Holdings	15,500	$0.565	22.21%
Old Chang Kee	100	$0.775	0.20%

Portfolio Market Value = $39,425

SRS Equity

Security	# Shares	Price	Portfolio %
SGX	1,300	$7.92	21.65%
OCBC	900	$11.54	21.84%
Sheng Siong Group	8,700	$1.16	21.22
SingTel	2,000	$3.33	14.01%
CapitaCommercial Trust	3,000	$2.06	13.00%
Frasers Commercial Trust	2,446	$1.61	8.28%

Portfolio Market Value = $47,552

July went by in a jiffy.  Most of the time, I was just watching the market, which persistently remained at the high end of valuation.  I did execute one trade though.

Trade Actions

SATS

I picked up 2,000 shares of SATS at $5.01 apiece.  (Could have bought cheaper had I waited a few more days.)  Investors were spooked by the 14% drop in net profits, which saw its stock price dived over 6% in a day.  In my view, SATS is simply facing temporal, cyclical headwinds.  The underlying business looks intact.  (SATS enjoys an exclusive duopoly with dnata in servicing airlines at the Singapore Changi Airport.)  The company has a sizeable $400 million cash hoard and was still able to generate $84 million of free cash flow for the latest quarter despite the profit drop.  I will accumulate more if the share price falls further to $4.50.  The 13 cents dividend that went ex on 29 July certainly helped to reduce my purchase cost.

Savings

July's Singapore Savings Bond (SSB) (ID: GX19080E) has an average yield of 2.01% p.a (link).  As mentioned in my previous post, the SSB yield is expected to get worse.  With the widely anticipated Fed rate cut, the yield will likely sink below 2%.  I am guessing 1.95% for next month's issue.  If you are considering to park your money in SSB, there are fixed deposit products in the market with a shorter tenure and equally competitive yield.  MoneySmart blog has a summary of these products (link).

Looking Ahead

August is special for my family, as my older son, wife and I celebrate our birthdays this month.  This means I have to set aside a higher budget for expenses.  What remains will go into my money jar for investments.

As the seasonal reporting winds to a close, I hope there will be chances to pick up other quality stocks unfairly sold down due to misaligned investor expectations, just like SATS.

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Portfolio Summary for June 2019

As of 30 June 2019

Cash Equity

Security	# Shares	Price	Portfolio %
DBS Group	400	$25.96	35.60%
OCBC	900	$11.40	35.17%
LHT Holdings	15,500	$0.545	28.96%
Old Chang Kee	100	$0.78	0.27%

Portfolio Market Value = $29,169

SRS Equity

Security	# Shares	Price	Portfolio %
SGX	1,300	$7.92	21.58%
OCBC	900	$11.40	21.50%
Sheng Siong Group	8,700	$1.10	20.05
SingTel	2,000	$3.50	14.67%
CapitaCommercial Trust	3,000	$2.17	13.64%
Frasers Commercial Trust	2,446	$1.67	8.56%

Portfolio Market Value = $47,721

June was an uneventful month for me.  I had to set aside cash to pay my insurance premiums and income tax.  I kept a close eye on the market, but did not spot any favourable opportunity to buy stocks on my watchlist.  (I missed the chance to pick up SATS when it dropped to $4.93, because Credit Suisse downgraded the stock to 'Sell'.  Sigh.)

On the other hand, I offloaded two of my REIT positions.  The S-Reits have run up in price, some to heights that I wonder whether the valuation is justified.  My reason for selling is multi-fold.  First, I have changed my investment focus to operating companies instead of REITs.   While REITs provide sizeable dividend income, there is the perennial issue of ownership dilution, because the managers keep issuing new units to themselves as payment for management fee.  Slower global growth may make it tough for the landlords to justify a rental hike, as we recently saw Starhill Global REIT deciding to keep base rent unchanged for the Toshin master lease at Ngee Ann City (news).  Lastly, the capital raising and leveraging up of some REIT counters has made me uncomfortable.  A ballooned debt load and an economic downturn can be a lethal concoction, as we saw during the Global Financial Crisis (GFC).

Trade Actions

Frasers Centrepoint Trust
I let go of my FCT holding at $2.44 apiece, only to see the price blast off to a high of $2.63.  I could not fathom the acquisition of 1/3 ownership in Waterway Point and 17.1% stake in PGIM Real Estate Fund would have such a multiplier effect on FCT.  Are investors getting overly jubilant about the fund's prospects?  Rating agency Moody's did mention 'both acquisitions - of Waterway Point and PGIM Fund - improve FCT's earnings resiliency and geographic diversification' (news).  However, it also cautioned - as with all REITs - that FCT 'faces inherent liquidity risks, due to its high dividend payout ratios and minimal cash balances.'

AIMS APAC REIT
I sold off AIMS APAC REIT at $1.45 apiece.  I had held the position for a long time, probably since the GFC.  It had served me well, providing a constant stream of income over the decade.  Management had consistently engaged in AEIs to improve the rental potential.  But it was time for me to move on.

Savings

Next month's Singapore Savings Bond (SSB) has an average yield of 2.16% p.a (link).  It is as good as it gets.  Investors holding out for a better yield may be disappointed. 

The yield on 10-year Singapore Government Bond dipped below 2% during mid June.  It is puzzling that investors are bidding up stock prices and bond prices - hence the yield decline - at the same time.  It looks like the average SSB yield will only get worse.  (I am guessing 2.01% for the August issue.)

I am not in favour of purchasing SSB at this rate of return, unless you have excess liquidity and you are not keen on stocks. 

Looking Ahead

My wife came across an article forecasting a recession next year (news).  I have my doubts, as there is no clear indication of the global economy tanking at the moment.  The last time I checked, the US Conference Board Leading Economic Index (LEI) is just flattening out (link).  (The LEI is said to be an accurate predictor of US economic health.  It declined rapidly months before the GFC struck.)  

Moreover, during the G-20 Summit, President Trump and President Xi agreed not to impose new tariffs, and for US and China to restart trade and economic talks (news).  While this does not mean a resolution of the trade row between the two superpowers, this is likely to be seen as a positive move and give investors confidence to take on risk.

End July also heralds the start of the earnings reporting season.  I will be watching to see how much an impact the US-China trade row has had on local companies.  

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Portfolio Summary for May 2019

As of 31 May 2019

Cash Equity

Security	# Shares
DBS Group	400
OCBC	900
LHT Holdings	15,500
AIMS APAC REIT	2,189
Old Chang Kee	100

Portfolio Market Value = $31,185

SRS Equity

Security	# Shares
SGX	1,300
OCBC	900
Sheng Siong Group	8,700
Frasers Centrepoint Trust	3,000
SingTel	2,000
CapitaCommercial Trust	3,000
Frasers Commercial Trust	2,408

Portfolio Market Value = $51,652

It is no wonder the clique goes, "Sell in May and go away". The Straits Times Index suffered a 8.3% drop for the month. While the benchmark is still up 1.6% year-to-date, there is scant comfort in the global economy. The US and China have yet to iron out a trade deal, so tariffs will continue to eat into corporate profits. US President Donald Trump's latest tweet threatened to raise tariff on Mexico, if the country fails to stem illegal immigrants from crossing the border (news). Looks like "tariffs" has become the new weapon of mass (economic) destruction.

In my previous summary, I mentioned that I was keen to take on some new positions. A few micro caps on my watchlist had released favourable annual results. Unfortunately, those stocks were also monitored by others in the market. On the day after the result announcement, those stocks jumped in price significantly. Oh well, such is life. I'd be patient and wait for another buying opportunity.

I did load up on two bank stocks though, taking advantage of the selloff in the last week of May.

Trade Actions

DBS Group
Finally, I had succumbed to temptation and bought 400 shares of DBS Group at $24.25 apiece. The price is still high in my opinion. Would have preferred to load up at the 52-week low. Nonetheless, I believe the business is still intact. An annual dividend of $1.20 is a good aspirin for the volatility in its share price.

OCBC
I added 900 shares of OCBC at $10.84 apiece. The Business Times recently quoted a Citibank report stating, "OCBC appeared interested to raise its 20 per cent stake in Bank of Ningbo over time as and when regulations allow." (news) This could potentially explain the rationale behind the lower-than-peers dividend payout. The article echoes the same sentiment shared in my earlier blog post (here), that something - positive or negative - may be brewing for OCBC that requires significant capital outlay. Taking a longer term perspective, I am confident the local banks will continue to be profitable, and the dividend will be increased or sustained.

Savings

Next month's Singapore Savings Bond (SSB) has an average yield of 2.13% p.a. which is on the low side compared to historical precedents. I have decided to stay out, in favour of the stock market.

Looking Ahead

June will be a 'dry' month for me, as I need to pay income tax and my insurance policies. Most probably I will only be a spectator in the stock market.

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To Diversify Or Not to Diversify?

I often ponder about portfolio diversification in my mind.  

On one end of the spectrum, there are investors like Warren Buffett and Charlie Munger who believe in concentrating their funds on their best ideas:

"Once you are in the business of evaluating businesses, and you decide you are going to bring the effort and intensity and time involved to get that job done, I think that diversification is a terrible mistake... If you can identify six wonderful businesses, that is all the diversification you need and you can make a lot of money and I can guarantee you that going into a seventh one is going to rather than putting more money in your first one, it's got to be a terrible mistake.  Very few people have gotten rich on their seventh best idea." 

- Warren Buffet's 1998 Florida University address

"The idea that very smart people with investment skills should have hugely diversified portfolios is madness. It’s a very conventional madness. And it’s taught in all the business schools. But they’re wrong."

- Charlie Munger

On the other end, there are investors like Peter Lynch, who held thousands of positions at certain times in his Fidelity Magellan mutual fund.

Personally, I limit my watchlist to no more than 15 companies at a time.  But I wonder if I should cut it down to 10.  Or even 6 (best ideas) for that matter.

When you run a concentrated portfolio, other issues start to creep in.  For example, I find it challenging to build up a position in micro caps.  On some days, the bid-ask spread is so wide, that simply lifting the offer will cause a run up in the stock price.  Perhaps that is the reason why most investors stick to the bigger companies.

Then there is the nagging concern whether you have done all of the homework required - the effort, intensity and time involved as Buffett said - to invest in the right company?

I figure it all boils down to faith.  Faith in my own stock picking skills.

To diversify or not to diversify?  What are your thoughts?   

Would you concentrate your funds on your few best ideas, or spread it across multiple positions?

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